"the 1997 regulations" means the Local Government Pension Scheme Regulations 1997;

"administering authority" means a body required to maintain a pension fund under the 1997 regulations;

"European authorised institution" and "European institution" have the same meanings as in the Banking Co-ordination (Second Council Directive) Regulations 1992; (SI2001/3649)

"FSAVC scheme" is a scheme approved by virtue of section 591(2)(h) of the Taxes Act;

"fund money" means money in the pension fund maintained by an administering authority;

"home-regulated investment business" has the same meaning as in the Banking Co-ordination (Second Council Directive) Regulations 1992; (SI2001/3649)

"limited partner" means a person who is not liable for the debts or obligatons of a partnership beyond the amount he contributed at the time he became a partner;

"member" has the same meaning as in section 124(1) of the Pensions Act 1995;

"proper advice", in relation to an administering authority, means the advice of a person who is reasonably believed by them to be qualified by his ability in and practical experience of financial matters (including any suitable officer of theirs);

"recognised stock exchange" has the same meaning as in section 84(1) of the Taxes Act;

"relevant institution" means - 

(a) the Bank of England,

(b) an institution authorised under Part I of the Banking Act 1987 (regulation of deposit-taking business),

(c) a person to whom the restriction on acceptance of deposits in section 3 of that Act does not apply because he is specified in Schedule 2 to that Act (central banks etc.), or

(d) a European authorised institution which has lawfully established a branch in the United Kingdom for the purpose of accepting deposits; (SI2001/3649)

"relevant institution" means -

(a) a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to accept deposits;

(b) an EEA firm of the kind mentioned in paragraph 5(b) of Schedule 3 to that Act which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule) to accept deposits; or

(c) a person who is an exempt person in respect of accepting deposits as a result of an order made under section 38(1) of that Act; (SI2001/3649)

"securities" includes shares, stock and debentures;

"statement of investment principles" means the statement referred to in regulation 9A(1) or any revision of it, as appropriate. (SI1999/3259)

"stock lending arrangement" means an arrangement such as is mentioned in section 263B of the Taxation of Chargeable Gains Act 1992;

"sub-underwriting contract" means a contract with a person who is underwriting a share issue to acquire the shares from him if he requires it;

"Taxes Act" means the Income and Corporation Taxes Act 1988;

"traded option" means an option quoted on a recognised stock exchange or on the London International Financial Futures Exchange;

"Transitional Regulations" means the Local Government Pension Scheme (Transitional Provisions) Regulations 1997;

"unquoted securities investment partnership" means a partnership for investing in securities which are normally not quoted on a recognised stock exchange when the partnership buys them.

(2) The definition of "relevant institution" in paragraph (1), together with regulations 3(5) to (6A) and 4(2) and paragraph 4 of Part I of Schedule 1, must be read with -

(a) section 22 of the Financial Services and Markets Act 2000;

(b) any relevant order under that section; and

(c) Schedule 2 to that Act. (SI2001/3649)

Definition of "investment"
     3.  - (1) In these Regulations "investment" and similar expressions have their normal meaning.

    (2) But the following provisions of this regulation specify things which count as investments for these Regulations, although they might not otherwise do so, and exclude things which might otherwise count.

    (3) A contract entered into in the course of dealing in financial futures or traded options is an investment.

    (4) If the administering authority use fund money for any purpose for which they may borrow money, that counts as an investment.

    (5) An insurance contract is an investment if and only if the contract is made with a person within paragraph (6) for whom making the contract is business within class III or class VII in Schedule 1 to the Insurance Companies Act 1982 (linked long term and pension fund management business).

    (6) The persons within this paragraph are - 

(a) a person whom that Act permits to carry on such business, and

(b) an insurance company which, because it has its head office in a member State an EEA State (as defined in that Act) (SI2000/2552), is permitted under the law of such a State to carry on insurance business of a similar sort. (SI2001/3649)

(5) A contract of insurance is an investment if and only if it is a contract of a relevant class, and is entered into with a person within paragraph (6) for whom entering into the contract constitutes the carrying on of a regulated activity (within the meaning of the Financial Services and Markets Act 2000). (SI2001/3649)

(6) The persons within this paragraph are -

(a) a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance of a relevant class;

(b) an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act, which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12 of that Schedule) to effect or carry out contracts of insurance of a relevant class; or

(c) a person who does not fall within sub-paragraph (a) or (b) and who, because he has his head office in an EEA State (within the meaning of that Act) other than the United Kingdom, is permitted by the law of that State to effect or carry out contracts of insurance of a relevant class. (SI2001/3649)

(6A) A contract of insurance is of a relevant class for the purposes of paragraphs (5) and (6) if it is -

(a) a contract of insurance on human life or a contract to pay an annuity on human life where the benefits are wholly or partly to be determined by reference to the value of, or the income from, property of any description (whether or not specified in the contract) or by reference to fluctuations in, or in an index of, the value of property of any description (whether or not so specified); or

(b) a contract to manage the investments of pension funds, whether or not combined with contracts of insurance covering either conservation of capital or payment of a minimum interest. (SI2001/3649)

    (7) A stock lending arrangement is an investment if and only if, in respect of it, the conditions in regulations 5.58 and 5.60 of Section L of the Financial Services (Regulated Schemes) Regulations 1991 are complied with, modified as specified in paragraph (8).

 (8) Those modifications are - 

(a) for the references in regulation 5.58 to section 129 of the Income and Corporation Taxes Act 1988 substitute a reference to section 263B of the Taxation of Chargeable Gains Act 1992;

(b) delete paragraphs 1a, 1c(ii) and 2b;

(c) for the references in both those regulations to the trustee, substitute a reference to the administering authority; and

(d) for the reference in paragraph 1c(iii) of regulation 5.58 to Guidance of the Board, substitute a reference to Guidance Release 4/91 issued by the Securities and Investments Board in June 1991. (SI2001/3649)

(7) A stock lending arrangement is an investment if and only if, in respect of it, the conditions in rules 5.14.4R and 5.14.6R in the Collective Investment Scheme Sourcebook are complied with. (SI2001/3649)

(8) For the purposes of paragraph (7) -

(a) references in rules 5.14.4R and 5.14.6R to the trustee must be read as if they were references to the administering authority, and

(b) the "Collective Investment Scheme Sourcebook" means the Collective Investment Scheme Sourcebook made by the Financial Services Authority under Part 10 of the Financial Services and Markets Act 2000. (SI2001/3649)

    (9) It is an investment to contribute to a limited partnership in an unquoted securities investment partnership.

    (10) A sub-underwriting contract is an investment.

Definition of "investment manager"
     4.  - (1) This regulation describes those persons who count as an "investment manager" for these Regulations.

    (2) A person is an investment manager if he is authorised under the Financial Services Act 1986 to manage the assets of occupational pension schemes.

    (3) A person is also an investment manager if he - 

(a) does not transact investment business (within the meaning of that Act) from a permanent place of business maintained by him in the United Kingdom;

(b) has a head office situated outside the United Kingdom in a member State;

(c) is recognised by the law of that State as a national of a member State;

(d) is authorised under that law to engage in one or more of the actitivies specified in Part II of Schedule 1 to the Financial Services Act 1986 (which lists different sorts of investment business); and

(e) is not prevented by that law from managing the assets of occupational pension schemes or assets belonging to another person.

    (4) A European institution carrying on home-regulated investment business in the United Kingdom is also an investment manager. (SI2001/3649)

(2) A person is an investment manager if -

(a) he has permission under Part 4 of the Financial Services and Markets Act 2000 to manage investments and may lawfully manage the assets of occupational pension schemes;

(b) he is an EEA firm of the kind mentioned in sub-paragraph (a), (b) or (c) of paragraph 5 of Schedule 3 to that Act, which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12 of that Schedule) to manage investments and may lawfully manage the assets of occupational pension schemes; or

(c) he is a person -

(i) who does not carry on regulated activities (within the meaning of that Act) from a permanent place of business maintained by him in the United Kingdom;

(ii) whose head office is situated in an EEA State (within the meaning of that Act) other than the United Kingdom;

(iii) who is recognised by the law of that EEA State as a national of that or another EEA State;

(iv) who is authorised under that law to carry on one or more regulated activities (within the meaning of that Act); and

(v) who is not prevented by that law from managing the assets of occupational pension schemes or assets belonging to another person. (SI2001/3649)

(a) the amounts payable by them or paid to them for the credit of the fund by any other authority under regulations 79 and 80 of the 1997 regulations (employers' contributions) or by virtue of the Transitional Regulations,

(b) all members' contributions except contributions payable under regulations 61 and 68 of the 1997 regulations (additional voluntary contributions),

(c) all income arising during the year from investment of the fund,

(d) all capital money deriving from such investment, and

(e) all additional payments received by the authority under the 1997 regulations or the Transitional Regulations.

    (3) In the case of an administering authority which maintains more than one pension fund, as respects sums which relate to specific members the references in paragraph (2) to the authority's fund are to the fund which is the appropriate fund for the members in question in accordance with Schedule 5 to the 1997 regulations.

    (4) Interest under regulation 82(1) of the 1997 regulations must be credited and paid to the fund to which the overdue payment is due.

    (5) Interest paid under regulation 21 of the Transitional Regulations (early retirement of chief officers) must be paid to the fund from which the benefits in question are payable.

    (6) Any costs, charges and expenses incurred administering a pension fund (except those incurred in connection with a FSAVC scheme) may be paid from it 

may be paid from it except - 

(a) those incurred in connection with an FSAVC scheme, and

(b) those costs and charges prescribed by regulations made under sections 23, 24 or 41 of the Welfare Reform and Pensions Act 1999 which the adminstering authority is enabled to recover by or under any such regulations. (SI2000/3025)

.

Choice of investment managers
     6.  - (1) Instead of managing and investing fund money for themselves, an administering authority may appoint one or more investment managers to manage and invest it for them.

    (2) But they may only appoint an investment manager if they comply with paragraphs (3) to (6).

    (3) They must reasonably believe that the investment manager is suitably qualified by his ability in and practical experience of financial matters to make investment decisions for them.

    (4) The investment manager must not be their employee.

    (5) They must be satisfied - 

(a) that the fund is managed by an adequate number of investment managers; and

(b) that the value of the fund money to be managed by any one investment manager will not be excessive.

    (6) They must have taken proper advice.

Terms of appointment of investment managers
     7.  - (1) Investment managers must, if appointed, be appointed on the terms set out in paragraphs (2) to (7).

    (2) The administering authority must be able to terminate the appointment by not more than one month's notice.

    (3) The investment manager must report to the administering authority at least once every three months on the action he has taken for them.

    (4) The investment manager must comply with all the administering authority's instructions.

    (5) In managing the fund the investment manager must take into account - 

(a) that fund money must be invested in a wide variety of investments,

(b) the suitability of those types of investment for the fund, 

(c) the suitability of any particular investment of that type and

(d) the administering authority's statement of investment principles   (SI1999/3259)

    (6) But paragraph (5)(a) does not apply where the investment manager only manages part of the fund and the terms of his appointment provide that it does not apply.

    (7) The investment manager must not make investments which would contravene the administering authority's statement of investment principles, (SI1999/3259) regulation 11 or Schedule 1.

    (8) In determining the investment manager's terms of appointment, the administering authority must take proper advice.

Review of investment manager's performance
     8.  - (1) Where an administering authority have appointed an investment manager they must keep his performance under review.

    (2) At least once every three months they must review the investments he has made.

    (3) Periodically they must consider whether or not to retain him.

    (4) In reviewing an investment manager's decisions and appointment, an administering authority must take proper advice - 

(a) if regulation 7(5)(a) applies, about the variety of the investments he has made, and

(b) about the suitability of those investments for the fund generally and as investments of their type.

Investments

Use and investment of pension fund money
     9.  - (1) An administering authority must invest any fund money that is not needed immediately to make payments from the fund.

    (2) They may vary their investments.

    (3) Their investment policy must be formulated with a view - 

(a) to the advisability of investing fund money in a wide variety of investments; and

(b) to the suitability of particular investments and types of investments.

    (4) An administering authority must obtain proper advice at reasonable intervals about their investments.

    (5) The authority must consider such advice in taking any steps about their investments.

Statement of investment principles
     9A.  - (1) An administering authority must, after consultation with such persons as they consider appropriate, prepare, maintain and publish a written statement of the principles governing their decisions about investments.

    (2) The statement must cover their policy on - 

(a) the types of investments to be held,

(b) the balance between different types of investments,

(c) risk,

(d) the expected return on investments,

(e) the realisation of investments,

(f) the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments, and

(g) the exercise of the rights (including voting rights) attaching to investments, if they have any such policy.

    (3) The first such statement must be published on or before 3rd July 2000.

(3A) A statement published after 30th September 2002 must also - 

(a) state the extent to which the administering authority comply with the ten principles of investment practice set out in the document published in April 2002 by CIPFA, the Chartered Institute of Public Finance and Accountancy, and called "CIPFA Pensions Panel Principles for Investment Decision Making in the Local Government Pension Scheme in the United Kingdom (Guidance note issue No. 5)"; and (SI2002/1852)

(b) give the reasons for not complying where they do not do so. (SI2002/1852)

    (4) The written statement must be revised by the administering authority in accordance with any material change in their policy on the matters referred to in paragraph (2) paragraphs (2) and (3A) (SI2002/1852) and published. (SI1999/3259)

Investments under s.11 of the Trustee Investments Act 1961
     10.  - (1) An administering authority may invest in any investment made in accordance with a section 11 scheme without any restriction as to quantity.

    (2) A "section 11 scheme" is a scheme under section 11 of the Trustee Investments Act 1961 (which enables the Treasury to approve schemes for local authorities to invest collectively).

Restrictions on investments
     11.  - (1) Schedule 1 sets out the limits which apply to certain sorts of investments.

    (2) The percentages set out in the headings in Part I are the limits on the amount of each description of investment listed under those headings. (SI2003/2719)

    (2) Subject to paragraph (2A), the percentages set out in Column 1 of Part I are the limits on the amount of each description of investment listed next to those percentages. (SI2003/2719)

    (2A) An administering authority may decide to increase those limits up to the limits set out in Column 2 of Part I (where a percentage is specified in that Column) in accordance with the requirements of regulation 11A. (SI2003/2719)

    (3) Those percentages are percentages of the total value of all existing investments in the fund before making the investment which is subject to the limit.

    (4) The limits in that Schedule only apply at the time the investment is made.

    (5) Part II of that Schedule sets out certain exceptions to the limits.

    (6) Part III of that Schedule applies for interpreting Parts I and II.

Requirements for increased limits (SI2003/2719)
     11A.  - (1) An administering authority which decides to increase limits under regulation 11(2A) must comply with the requirements of this regulation.

    (2) They must have taken proper advice.

    (3) They must take account of the factors set out in regulation 9(3).

    (4) The decision must specify - 

(a) the description of investment to which it applies;

(b) the limit on the amount of the investment;

(c) the reason for that decision;

(d) the period for which the decision will apply;

(e) if the authority intend to review the decision before the end of the period in (d), the date when the decision will be reviewed; and

(f) that the decision complies with these Regulations.

    (5) Where the period for which the decision will apply comes to an end, the limits will be those set out in Column 1 of Part I unless before the end of that period the administering authority reviews the decision in accordance with this regulation.

    (6) A decision following a review to continue to use limits increased under regulation 11(2A), whether or not the increased limits have been altered, must - 

(a) take account of the matters set out in paragraphs (2) and (3); and

(b) specify the matters set out in paragraph (4).

    (7) Before a decision under regulation 11(2A) or paragraph (6) can take effect, the administering authority must revise and publish the written statement of investment principles which they are required to maintain under regulation 9A to include the matters specified in paragraph (4). (SI2003/2719)

Use of fund money by an administering authority
     12.  - (1) An administering authority must pay interest on the total from day to day of any fund money used by them and not repaid.

    (2) That interest may not be paid at a rate lower than the lowest rate at which they could have obtained a commercial loan of that amount at 7 days' notice (otherwise than by bank overdraft).

(SI2003/2719)

4. All deposits with -

(a) any local authority, or

(b) any body with power to issue a precept or requisition to a local authority, or to the expenses of which a local authority can be required to contribute,

which is an exempt person (within the meaning of the Financial Services and Markets Act 2000) in respect of accepting deposits as a result of an order made under section 38(1) of that Act, and all loans (but see paragraph 12). (SI2001/3649)

     5. All investments in unlisted securities of companies.

     6. Any single holding (but see paragraphs 13 and 14).

     7. All deposits with any single bank, institution or person (other than the National Savings Bank).

(a) units or other shares of the investments subject to the trusts of unit trust schemes managed by any one body (but see paragraph 14), and

(b) open-ended investment companies where the collective investment schemes constituted by the companies are managed by any one body. (SI1999/3259)

    9. All investments in units or other shares of the investments subject to the trusts of unit trust schemes managed by any one body (but see paragraph 14).

     9A. All investments in open-ended investment companies where the collective investment schemes constituted by the companies are managed by any one body.

     9B. All investments in units or other shares of the investments subject to the trusts of unit trust schemes and all investments in open-ended investment companies where the unit trust schemes and the collective investment schemes constituted by those companies are managed by any one body (but see paragraph 14). (SI1999/3259)

     10. All insurance contracts Any single insurance contract (SI2000/2552).

     11. All securities transferred (or agreed to be transferred) by the authority under stock lending arrangements. (SI2003/2719)

(a) the investment is made by an investment manager appointed under regulation 6, and

(b) the single holding is in units or other shares of the investments subject to the trusts of any one unit trust scheme.

     14. The restrictions in paragraphs 6 and 9 9 and 9B (SI1999/3259) do not apply - 

(a) to any investment falling within paragraph 1 of Part I (National Savings) or paragraph 1 or 2 of Part II (interest bearing securities, loans etc.) of Schedule 1 to the Trustee Investments Act 1961, or

(b) to a deposit with a relevant institution.

"Collective investment scheme" has the meaning given in section 75 of the Financial Services Act 1986.

"Companies" includes companies established under the law of any territory outside the United Kingdom.

"Government loan" means a loan - 

(a) to Her Majesty's Government in the United Kingdom, or

(b) to the Government of the Isle of Man.

"Listed securities" means securities quoted on a recognised stock exchange.

"Loan" does not include - 

(a) investing money in registered securities to which section 1 of the Stock Transfer Act 1963[] applies (transfer by stock transfer forms) or in listed securities, or

(b) depositing money with a relevant institution,

and "lent" must be understood in that way.

"Open-ended investment company" means a company incorporated by virtue of regulation 3(1) of the Open-ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996. (SI1999/3259)

"open-ended investment company" means an open-ended investment company as defined in section 75(8) of the Financial Services Act 1986 section 236 of the Financial Services and Markets Act 2000 (SI2001/3649) which is an undertaking for collective investment schemes to which the Council Directive No. 85/611/EEC co-ordinating the laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, as amended Council Directive No. 85/611/EEC co-ordinating the laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, as last amended by European Parliament and Council Directive No. 2001/108/EC (SI2003/2066), applies  (SI1999/3259)

"Single holding" means investments - 

(a) in securities of, or in loans to or deposits with, any one body,

(b) in units or other shares of the investments subject to the trust of any one unit trust scheme, or

(c) in transactions involving any one piece of land or other property.

"Unlisted securities" means securities which are not quoted on a recognised stock exchange.

" "the Investment Regulations" means the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998."

 

     2. In regulation 3(9) of those regulations after the words "the principal regulations" insert the words "or, as the case may be, the Investment Regulations".

     3. In regulation 2(1) of the Transitional Regulations - 

(a) in the definition of "the Investment Regulations" for the words "regulations L4 to L8 of the 1995 regulations" substitute the words "the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998";

(b) in the definition of "the replaced provisions" omit the words "(but not including the Investment Regulations)".